Emerging Risks
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Emerging Risks

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This presentation reviews a recent emerging risks survey, including results and how they might be used. The presenter also discusses how an emerging risk strategy is being developed at an existing......

This presentation reviews a recent emerging risks survey, including results and how they might be used. The presenter also discusses how an emerging risk strategy is being developed at an existing firm.

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  • 1. May 1, 2009 Developing an Emerging Risk Strategy Session RI5 – Emerging Risks Beverly Barney, FSA, MAAA, CERA, Vice President & Actuary The Prudential Insurance Company of America • 213 Washington Street • Newark, NJ 07102 Tel: (973) 802-8731 • Fax (973) 802-5846 • beverly.barney@prudential.com
  • 2. Insert Title Copy Here Agenda
    • What are emerging risks?
    • Haven’t we been monitoring emerging risks?
    • Why do we need a strategy to manage them?
    • How do we identify what we don’t know?
    • What is everyone else doing?
    • What does success look like?
    • What are some of the challenges?
    • Where are we now?
  • 3. Insert Title Copy Here What are Emerging Risks?
    • Difficult Concept:
      • Webster defines “risk” as “The possibility of loss”
      • And “emerging” as “To come into being”
      • Is an emerging risk already on our radar screen or unknown?
    • Our Definition:
      • A condition, situation or trend that could impact the Company’s financial strength, competitive position or reputation within the next 5 years.
    • Common Theme:
      • Emerging risks involve a high degree of uncertainty because, unlike other risks, they don’t have a track record which can be used to estimate likely probabilities and expected losses.
  • 4. Insert Title Copy Here Haven’t We Been Monitoring Emerging Risks?
    • Monitoring emerging risks is not new.
    • Examples:
      • Analyze quarterly trends in mortality, persistency, morbidity.
      • Monitor credit risk profile of our investment portfolios.
      • Review business unit operating risks.
      • Monitor changes in legal and regulatory environment.
      • And many more……
  • 5. Insert Title Copy Here Why Do We Need a Strategy to Manage Them?
    • Our Objective:
      • To establish a forward looking, comprehensive framework to manage emerging risks that could, at some point in the future; impair the Company’s financial strength, competitive position or reputation.
      • Achieving this objective would:
        • Strengthen the company for our shareholders by controlling downside risk.
        • Minimize surprises and volatility.
        • Enable early recognition of risks which could impact multiple areas.
        • Recognize rating agency considerations.
  • 6. Insert Title Copy Here How do We Identify What We Don’t Know?
    • Senior Management brainstorming pilot.
    • Brainstorming with associates closer to the work.
    • Presentations to many internal areas to raise awareness and collect thoughts on emerging risks.
    • Advisory Group formed.
    • Piloted systematic identification process with one of our businesses.
  • 7. Insert Title Copy Here What is Everyone Else Doing?
    • Contacted Think Tanks.
    • Met with consultants.
    • Perform media scan.
    • Attend Risk Management conferences and symposiums.
    • Joined International Network of Actuarial Risk Managers – including Google sub-group on emerging risks.
    • Obtain published surveys and newsletters.
  • 8. Insert Title Copy Here What Does Success Look Like?
    • We can’t manage what we don’t know.
    • What could we do?
      • Identify leading indicators to minimize surprises and allow early mitigation.
      • Ensure process is in place to collect exposure and impact information across Enterprise quickly.
      • Develop process to identify secondary effects.
      • Identify key management group to manage through event.
      • Explore alternative mitigation techniques.
      • Define content and format of reporting.
      • Perform after action review.
  • 9. Insert Title Copy Here What are Some of the Challenges?
    • How do we know we’re looking at the right risks?
    • How much time and resources should we invest?
    • How do we incorporate this strategy into existing risk management activities?
    • Should management of emerging risks be centralized or de-centralized?
    • Who should identify and monitor leading indicators; how often?
    • When monitoring leading indicators, when should we take action?
    • How do we identify and monitor emerging risks without legal liability for foresight?
    • How much structure should we put on this process?
      • Too much -> ERM is “creating work”.
      • Too little -> hard to aggregate.
    • We don’t know what we know.
  • 10. Insert Title Copy Here Where Are We?
    • Brainstorming continuing.
    • Advisory Group continues.
    • Broadening discussions.
    • Working through Risk Officers.
      • Annual Report
        • Developed and provided Emerging Risk Discussion Guide
  • 11. Insert Title Copy Here
        • Questions and Answers